Ford to build another Chinese auto plant

Adds 3d plant in rapid effort to expand there

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Ford executives and officials from Hangzhou, China, took part in a ceremony Thursday to explain the automaker’s plans to build a $760 million assembly plant there.

By Keith Bradsher
New York Times
April 20, 2012

HANGZHOU, China - Ford Motor has chosen China for its largest factory expansion program in a half century, announcing Thursday that it would build a $760 million assembly plant in Hangzhou, two weeks after announcing another $600 million plan to build a new assembly plant in Chongqing and less than six weeks after completing a third assembly plant in Chongqing.

Ford is late to China’s party, and its new factories will open in a slowing, increasingly competitive Chinese market. Rapid factory construction in China is a throwback to the company’s last big factory building campaign in the 1950s, when models like the Thunderbird captured the hearts and wallets of young Americans and when Ford was racing to increase capacity in postwar Europe, Australia, and South Africa.

Auto sales in China rose just 2.5 percent last year, after a decade of double-digit annual growth. Sales were down 1.3 percent in the first quarter of this year from a year earlier, the first quarter to show a decline in seven years, according to official figures.

Ford’s ambitious investment plans in China, where it holds a little more than 2 percent of the market, represent “a sharp contrast to the old Ford in China, which was tentative, thin on products and short on money for investment,’’ said Michael Dunne, a longtime auto consultant in China.

Ford’s planned expansion comes as a long list of Japanese, European and US automakers are also building more factories and face competition from fast-growing, low-cost Chinese manufacturers.

Joe Hinrichs, the president of Ford’s operations in Asia, the Pacific region, and Africa, said that Ford had forecast in 2010 that the Chinese market would grow at a compound annual rate of 5 percent for the next decade, and the company still believes this despite slower growth last year. Ford’s capacity additions will come faster, meaning that it needs to take sales from other manufacturers as well to keep its new factories full.

The Chinese market has become more competitive in recent months as Japanese automakers have ramped production back up after suffering parts shortages for many months following the tsunami last year. But Hinrichs said “it’s a profitable business in China, and we do expect to grow our market share in China.’’

Automakers tend to grow most rapidly when they extend their model lineups to start offering cars and other vehicles in market segments in which they have not previously competed. Because that is part of Ford’s plan in China, their market share probably will increase, said Lin Huaibin, an analyst in the Shanghai offices of IHS Automotive, a global consulting firm.

As auto executives from around the world prepare to gather Monday for media days at the Beijing auto show, the talk is also likely to revolve around another problem that has started to surface in the Chinese market: rampant discounting at dealerships.

Dealers even promoted discounts off the retail price early this year on large luxury models like the Mercedes S-Class, although the discounts are now becoming harder to find as the Chinese government began easing in March its curbs on bank lending.

Ford’s late start in the Chinese market has given it another liability: Most of its operations are far from the coast in western China, making it much harder to export cars someday if the Chinese market cannot absorb them.

The company’s sprawling factories in Chongqing, owned through a joint venture with one of China’s largest state-owned weapons makers, also cannot easily import or export auto parts.

The inland operations are also far from China’s wealthiest cities, which tend to be close to the coast, although inland cities are also starting to become more prosperous as well.

Until early this year, Ford had an annual manufacturing capacity in China of 450,000 cars, in what has become the world’s largest market, with annual sales of 18 million vehicles. But by 2015, it plans to have an annual capacity of 1.2 million cars.

Ford opened early last month what is essentially a new assembly plant in Chongqing with an annual capacity of 150,000 cars, although for regulatory purposes it is an extension of an existing assembly plant that is a 10-minute drive away. Two weeks ago, Ford announced it would increase its capacity at the new assembly plant by 350,000 cars a year by expanding the new operation and by building yet another assembly plant next door.

Ford said Thursday that it would build a state-of-the-art assembly plant in Hangzhou with an annual capacity of 250,000 cars.

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